Nvidia’s Growth Driven by AI Demand, Investment Potential Rising (NASDAQ: NVDA) supplies some of the world’s most advanced graphics processing units (GPUs) for data centers—hardware that enables developers to power and train artificial intelligence (AI) software. The demand for its chips far exceeds current supply, which has contributed to Nvidia’s addition of over $2.3 trillion to its market capitalization since the start of 2023.
During Nvidia’s annual GPU Technology Conference (GTC) last month, CEO Jensen Huang outlined several catalysts expected to further accelerate the company’s rapid growth. Currently, Nvidia’s Stock is trading down 27% from its record high amid the wider market sell-off, presenting a potential buying opportunity.
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Image source: Nvidia.
New AI Models Require Vast Computing Power
Large language models (LLMs) are foundational to AI applications. These models require vast amounts of data for training, and greater access to data results in “smarter” tools. However, training LLMs demands significant computing power—especially parallel processing—which explains the soaring demand for Nvidia’s data center GPUs.
Historically, LLMs provided “one-shot” responses, generating a single output quickly for each user prompt. Though effective, this method did not adequately address inaccuracies, diminishing the overall user experience. Now, leading developers such as OpenAI, Anthropic, and DeepSeek are adopting a new approach called test-time scaling, or “reasoning.”
Instead of merely processing endless data, these models focus on “thinking” through inputs before producing outputs. This strategy enhances the accuracy of responses by cleaning up any inconsistencies before final delivery. Consequently, it has led to advanced AI models like OpenAI’s GPT-4o series, DeepSeek’s R1, Anthropic’s Claude 3.7 Sonnet, and Alphabet‘s Gemini 2.5 Pro.
Nonetheless, reasoning models demand significantly more computing resources. Huang indicated that each response utilizes ten times more tokens (including words, punctuation, and symbols) due to the increased analysis conducted in the background. As a result, these models become slower in rendering final outputs. Huang projects that GPUs will need to perform ten times faster to compensate, expecting developers will require a staggering 100 times more computing power to provide satisfactory reasoning model user experiences.
Nvidia’s new Blackwell GPU architecture aims to meet this soaring demand. For instance, a Blackwell GB200 GPU can perform AI inference 30 times faster than the previous generation based on the Hopper architecture. Moreover, Nvidia recently introduced its Blackwell Ultra architecture, designed specifically for reasoning models, which can deliver performance improvements of up to 50 times over Hopper.
A $1 Trillion Annual AI Opportunity by 2028
The shift towards reasoning models could serve as a considerable tailwind for Nvidia’s GPU sales. At the GTC, Huang revealed that the four largest cloud infrastructure providers—Amazon Web Services, Microsoft Azure, Google Cloud, and Oracle Cloud Infrastructure—have collectively ordered 3.6 million Blackwell GPUs, nearly triple the number of Hopper chips purchased the previous year.
This figure does not even include other major players developing AI for their own use, such as Meta Platforms, Tesla, and OpenAI, indicating that the total number of Blackwell orders is likely much larger. Following this trend, Huang predicts that AI infrastructure spending will exceed $1 trillion annually by 2028, with a significant portion directed toward AI accelerator chips like those Nvidia offers.
Nvidia’s data center division generated $115.2 billion in revenue for its fiscal year 2025 (ending January 26), marking a remarkable 142% increase from the previous year. If Huang’s projections hold true, there remains substantial growth potential for the company.
Nvidia’s Stock Appears Attractive at Current Valuation
The 27% decline in Nvidia’s Stock from its recent peak has created an appealing valuation for investors. Currently, Nvidia trades at a price-to-earnings (P/E) ratio of 36.9, its lowest level in three years, and represents a 38% discount to its 10-year average P/E ratio of 59.5.
Data by YCharts.
Moreover, consensus estimates from Wall Street suggest Nvidia’s earnings per share (EPS) for fiscal 2026 will be $4.53, leading to a forward P/E ratio of just 23.9. To align with its 10-year average P/E ratio of 59.5, Nvidia’s stock would need to increase by 149% by the end of this fiscal year, assuming Wall Street’s estimates are accurate.
Looking ahead, investors should consider a longer-term horizon. If Huang’s predictions materialize, potential returns for Nvidia shareholders could manifest over the next three to five years.
Capitalizing on a Unique Investment Opportunity
Many investors often feel as though they missed opportunities to invest in high-performing stocks. If this sentiment resonates, it is crucial to note that our team occasionally identifies “Double Down” Stock recommendations for companies on the verge of significant growth. This may be an opportune moment to invest before potential gains become scarce. The numbers illustrate the potential:
- Nvidia: If you invested $1,000 when we doubled down in 2009, you’d have $286,347!*
- Apple: Investing $1,000 when we doubled down in 2008 could have turned into $42,448!*
- Netflix: An investment of $1,000 in 2004 when we doubled down would now be worth $504,518!*
We are currently issuing “Double Down” alerts for three outstanding companies, and this may be a rare chance to act.
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*Stock Advisor returns as of April 1, 2025
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has the following options: long April 2025 $200 puts on Tesla and long April 2025 $210 puts on Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Oracle, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
